Wednesday, May 31, 2023

Stock markets are entering the risk zone because of US debt fears

While the stock market is now focused on the US competition, declines in Asia were followed by early declines in London, Paris and Frankfurt, where some internal issues have resurfaced.

Updated German GDP figures pointed to the auto powerhouse’s recession in the first few months of the year, despite earlier readings suggesting otherwise, as the UK federal market reeled from an inflationary shock on Wednesday.

MSCI’s broadest global stock index was down 0.2%, but after two days of selling it was enough to push sentiment lower and safe havens as the dollar hit two-month highs.

Washington’s short-term borrowing costs surged 7% after Fitch downgraded the US credit rating late on Wednesday, while the yuan’s slide for six months showed its economy is back on track.

“Unfortunately, the market now faces a plethora of risks,” said Invesco’s Ben Jones.

Still, Wall Street’s S&P 500 futures were pointing higher after the earnings outlook for the world’s most valuable publicly traded chip company, Nvidia, whose shares are up to 24% of the stock market.

Asia was divided overnight, with Japan struggling to advance and Hong Kong plunging to its lowest level of the year by nearly 2%, amid renewed geopolitical concerns. Chinese tech giants such as Tencent, Alibaba, AIA and Meituan are listed there.

Back in Washington, negotiators for President Joe Biden and Republican Congressman Kevin McCarthy held what both sides called a fruitful debt ceiling. Traders, however, with no solution in sight, remained cautious about a possible default in early June.

A price downgrade could affect trillions of dollars in Treasury debt securities. Fitch’s move is reminiscent of 2011, when S&P downgraded the US rating, prompting a series of downgrades and a stock market sell-off.

In the foreign exchange market, the dollar index gained 0.2%, reaching a new two-month high of 104.16 units, while the euro did the opposite of the German data.

Brent crude was down $1, at $77.5 per barrel, with the price of the European benchmark gas at almost two years and more than 90% since the record peaks caused by the incursion or special operation of the Russian military in Ukraine.

By Marc Jones, from the Reuters agency

Nation World News Desk
Nation World News Desk
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